Does Obamacare really cut Medicare Benefits to Senior Citizens?

Among the many narratives injected into the public debate over health care reform, I find the most disturbing to be the notion that our senior citizens will experience cuts in their Medicare benefits as a result of Obamacare.

Despite the 'doom and gloom' predictions you may have heard, the proposed savings in Medicare are designed to come from two sources; (a) a crackdown on Medicare fraud, estimated to currently cost the federal government as much as $60 billion per year and (b) a reduction in what is paid to the Medicare Advantage programs offered by private insurance companies.

As you may be under the impression that the legislation will cut payments to physicians by 21% and institute draconian cuts in payments to hospitals, let’s set the record straight on this at the outset so we can dispose of this bit of disinformation.

Physicians have faced a 21% cut in payment from Medicare long before Obama became president and, thus, long before health care reform was more than a gleam in the eye of its proponents.

The threatened cuts are the result of a formula ("SGI") established during the Clinton years that was designed to control the rate of growth in Medicare payments to physicians. The problem is that nobody anticipated that the number would go down. As a result of the decrease, and the understandable displeasure expressed by America's doctors, Congress would end each year by deferring the cuts until they added up the 21% cut doctors now fear. Note that this number did not arise as a result of a stroke of the president’s pen as Obamacare detractors would have you believe. It was the constant deferral by Congress, dating back to 2002, that has permitted the number to reach this point.

The deferment is still the order of the day. While Congress has been afraid to permanently get rid of the threatened cut (they still figure in the total value of the cut in reaching their government healthcare expenditure numbers) and toss out the formula that failed to work as planned, the cut continues to be deferred. You can expect this to continue until Congress eventually gets rid of the entire mess as there are few Democrats or Republicans in Congress willing to do the damage that would be done by actually instituting these cuts.

It is hard to imagine that anybody - with the exception of the bad guys who are profiting handsomely from Medicare scams- can object to efforts to curtail this expensive and popular criminal activity. So extensive is Medicare crime that, in the city of Miami, the cocaine capital of America, Medicare fraud has now replaced the drug trade as the number one criminal activity in the city.

And why not?

Medicare criminals rarely get gunned down in their pursuit of easy money. The most substantial inconvenience these bad guys experience is shutting down their offices when the feds get onto them. Of course, they simply open up a new one under a different name and continue the fraud.

I’m sure that the cynical among you are scoffing at the notion that the federal government will now, as a result of health care reform, have more success cracking down on Medicare crime than they’ve had in the past.

You may be right.

To date, the government’s record on getting Medicare crime under control has been nothing short of abysmal. As a result, we will just have to wait and see if the CMS and Justice Department can do a better job of this.

In the meantime, the success or failure of the effort to reduce Medicare fraud will have no impact on the benefits our seniors receive via Medicare. It is the cuts to the Medicare Advantage programs, enjoyed by 11 million plus senior citizens, which are at the heart of the controversy.

First, a little history to better understand what Medicare Advantage is, how it came to be and whether or not the program justifies the increased costs the American taxpayers have carried since 2003.

In the belief that Medicare could be more effectively administrated by the private sector and that beneficiaries should have the opportunity to purchase additional benefits in exchange for a higher premium payment, the “Medicare + Choice” program (Part C of Medicare) was created in the Balanced Budget Act of 1997.

The program experienced limited success until 2003 when The Medicare Prescription Drug, Improvement and Modernization Act dramatically increased the amount of subsidies paid by Medicare to the “Medicare+Choice” program in order to assist the health insurance companies to offer increased benefits to their members, including pharmaceutical coverage to assist seniors in avoiding the ‘gap’ in drug coverage called ‘the donut hole.’

The 2003 law additionally renamed the program 'Medicare Advantage.'

Following the 2003 legislation, and largely in response to the pharmaceutical drug benefits made available in these programs, Medicare Advantage began to greatly expand its popularity.

But the popularity came at a significant cost to the taxpayers as the government subsidies provided to Medicare Advantage insurers added approximately 12 to 13 percent to the cost of Medicare benefits.

Under the conditions of the subsidy, an office visit, medical procedure, etc., that cost $100.00 for a beneficiary directly participating in Medicare, rose to $112.00 when the government reimbursed a Medicare Advantage program for the identical service or procedure.

The increased cost was not a secret. In 2003, the insurance companies asked Congress to provide them with this subsidy to give them time to get the program up and running. The insurers told Congress that a few years of government assistance would enable them to craft a program that would deliver Medicare services - plus additional benefits - and do it more efficiently than the government.

The subsidy was included in the 2003 law with the proviso that the government payments would begin to phase out in 2010.

Not surprisingly, as 2010 rolled around, the health insurance lobby asked Congress to extend the subsidy. However, as a result of the new health care reform legislation, the answer to the lobbyists was a resounding “no” – forcing the Medicare Advantage programs to keep the deal they made back in 2003.

Importantly, and contrary to the misinformation out there, the health care reform legislation did not end the Medicare Advantage program. The impact of the legislation was to empower the CMS (the entity that oversees Medicare) to negotiate tougher deals with Medicare Advantage programs with respect to how much Medicare would reimburse them for their services to participants (more on how that is working out later.)

Let us assume for the moment that, as a result of receiving much lower payment rates from Medicare, some Medicare Advantage programs cease operating or diminish their benefits to the detriment of their customers. What, exactly, will these beneficiaries lose?

The typical Medicare Advantage program, which can either be a pay-per-service plan, PPO, or HMO (meaning that participants are obligated to stay in network rather than see any doctor or check into any hospital they wish as they can under Medicare), offers the following benefits over and above what one would receive by signing up for Medicare Parts A, B & D.

Free preventative care

Fill the Part D pharmaceutical benefit “donut hole”

Often contains dental and vision plans

Provides health club memberships

Let’s begin with free preventative care as, clearly, this is a meaningful benefit. Losing this benefit in a Medicare Advantage program would be a difficult challenge for our senior citizens who make the effort to stay healthy, right?

Wrong.

As of September 23, 2010, seniors are entitled - free of charge - to an annual physical along with free diagnostic tests such as mammograms and colonoscopies. No co-payments...no changes in deductibles...no increase in Part B premiums...no need for anything beyond your ‘run of the mill’ Medicare participation.

So, why would anyone want to pay an extra premium to a Medicare Advantage policy for this benefit? Equally important, why would American taxpayers want to subsidize these insurance programs for a benefit now available to Medicare beneficiaries at no cost whatsoever?

Still, one of the major reasons people opted for the Medical Advantage program was the pharmaceutical benefit – and with good reason. The gap in Part D drug coverage can present a senior with a serious problem when it comes to paying for badly needed medicines.

But that was pre-Obamacare.

Now, the donut hole will be gradually reduced until it is completely closed in 2020. In the meantime, the government is giving back money to seniors to help them through this issue until it is fully resolved. A check for $250.00 has already been issued to most Medicare qualified seniors (or soon will be) to assist with this problem. Beginning next year, seniors will get 50% off on prescription drugs during the gap with the full 100% of the cost of prescription drugs credited towards getting them through the gap period to where they once again regain full coverage.

An argument can be made that since the donut hole in pharmaceutical coverage for seniors is not completely filled until 2020, Medicare Advantage is still of considerable importance to our seniors. However, given the steps already being taken to reduce the pain, there is ample reason to question the allure of the extra premium paid for a Medicare Advantage program as something much less than that premium would, in all likelihood, more than cover the coverage gap if you simply put the premium payment in the bank and used it when - and if - you hit the gap period.

Strike two against Medicare Advantage. Two of the key benefits seniors pay extra for in these programs are now offered - or soon to be offered - as a basic benefit of Medicare Parts A, B and D.

As for the dental and vision, these are important benefits that seniors might wish to purchase. And they can. If the value of these services is worth it, a senior can still buy a Medicare Advantage program that offers this to them.

But, you ask, won't it now cost them more? Hang in there just a bit longer for the answer.

As for the health clubs – sorry, but I don’t feel good about subsidizing these memberships with my tax dollars. Like so many younger Americans, seniors are likely to sign up and then never use the place after the first few weeks. A daily walk outdoors or through the shopping mall coupled with a couple of $10 home barbells will produce the same results at no charge (other than the one-time $20 charge for the barbells) to our seniors or the taxpayers.

So, by doing away with the subsidies, the taxpayers save billions - money that will be used to reduce the annual costs to the government and extend the life of the Medicare program. Medicare Advantage participants may lose their health club memberships, and possibly, their vision and dental, all of which they will still have the opportunity to buy if they are willing to pay an additional premium.

These savings, folks, are the savings contemplated in Obamacare – nothing less and nothing more.

Now, the big, surprise finish.

Many legislators and policy experts have assumed that the health care reform legislation would result in a dramatic rise in Medicare Advantage premium charges. In 2009, the rates went up 15% as the insurance companies offering Medicare Advantage programs sought to teach Congress a lesson by providing a glimpse of what could be expected should health care reform become law. As a result, upon passage, the expectation was these rates would continue to dramatically increase.

After all, without the billions in government subsidies, Medicare Advantage programs would have to dramatically raise the premium costs to their customers if they were to stay in business.

At least, that's what they told us would have to happen.

Yet, somehow, it was announced this week that the 11.3 million beneficiaries who participate in Medicare Advantage programs will experience a premium rate drop of 1% this year.

How can this be possible? Certainly, the health insurance companies would never be less than completely honest with us ... would they?

Medicare officials said the reform law gave them a stronger stance in negotiations with participating insurers, which they used initially to reject about 300 plans. Donald Berwick, head of the CMS, said, "These plans unfairly proposed to increase out-of-pocket expenses for beneficiaries while increasing their own profit margins," adding, "We said, 'No, you have to do better.'"

According to John Gorman of the independent consulting firm, Gorman Health Group,

Officials gave insurers "a beat-down" during negotiations. This was night-and-day different from the Bush years. Insurers succumbed to the government's demands and stayed in the Medicare market because they have become much more dependent on Medicare business.

So it seems that the business is still profitable after all, even without the 12% government subsidy.

Go figure.

The end result?

Seniors who are no longer interested in Medicare Advantage programs, now that they can receive free physicals and diagnostic tests by signing up directly with Medicare, and are getting much better benefits towards filling the pharmaceutical donut hole, will now save the cost of the added premium charges they have been paying for these extra benefits. Meanwhile, the American taxpayer saves billions upon billions in the subsidies we’ve been paying to these Medicare Advantage programs to feather their profits.

Further, seniors who would like to continue in Medicare Advantage programs for full pharmaceutical protection until this is fully resolved in 2020, along with dental and vision coverage and, yes, continued health club membership, can - at least for this year and likely well into the future - do so paying one percent less than what they were paying last year.

Not so bad after all.

I do realize this information blows a hole in the whole “Obamacare is screwing our seniors” narrative. I also realize that many will want to lash out because they cannot accept that what they've been told is wildly inaccurate.

But I also know that Americans of all political persuasions have no desire to unnecessarily frighten or mislead our senior citizens.

So, here’s the deal.

If you have some facts (backed up with citations) that reveal some other cut in Medicare that will harm our seniors, I invite you to provide this information in the comments section below. Not only will the readers learn from any information you might have, so will I.

But if your plan is to simply rant because this puts a giant crack in the importance of your believing that the health care reform program is out to get you, please don’t.

While you are clearly entitled to whatever ideology works for you, let's do our senior citizens a favor and give them the facts.